The decision to file for bankruptcy is typically a last resort for people who find themselves hassled with debt. While bankruptcy may offer a fresh start and relief from bills incurred from divorce, unemployment and uninsured medical costs, many consumers worry about how the decision will ultimately impact their financial future. Below are some of the myths about Bankruptcy that debtors should not believe,
Myth: Filing bankruptcy will ruin your reputation:
Fact – It is the most common misconception about bankruptcy. It is true that bankruptcy is a public legal proceeding but it also true that there are huge numbers of bankruptcy filings everyday and no one takes the pain to follow all of them diligently. Unless you are a socially prominent person drawing a lot of media attention, the only people interested in your bankruptcy filing will be your creditors and no one else.
Myth: Personal bankruptcy is meant for the poor only:
Fact – Another common stigma associated with bankruptcy is, bankruptcy is only for the poor. But the fact is quite different. The terrible economic downswing in the recent years has pushed numerous formerly affluent people into bankruptcy. Bankruptcy is no more a social stigma but a financial catastrophe that can hit any of us.
Myth: If you file bankruptcy, creditors will take your valuable assets and all of your money:
Fact – The truth is that bankruptcy will provide very generous exemptions on the federal and state level. Most debtors will never lose any assets during bankruptcy because their assets’ value falls below the dollar amount allowed by bankruptcy exemptions. Furthermore, despite what some would have you believe, most Americans do not have assets which are even worth liquidating for the purpose of paying debt. And those assets such as a home or a car which are valuable are usually exempt from seizure in bankruptcy.
Myth: If you file bankruptcy, you should close all of your bank accounts:
Fact – You need not close your bank accounts just because you have filed bankruptcy. As long as you do not have an over drafted bank account, you should be able to keep that account during bankruptcy.
Myth: Once you have file bankruptcy no one will do business with you, you won’t be able to even rent an apartment, buy a home or get insurance.
Fact – Debitors exiting bankruptcy are able to do financial business soon afterwards. Within only a few short years many are able to purchase a home and get unsecured credit cards.
Myth: Bankruptcy proceedings are long, arduous and expensive process that the average debtor cannot afford.
Fact – Legal proceedings which are associated with Bankruptcy are less expensive than fighting creditor lawsuits that come with unpaid debt. Debtors are more than willing to spend money on their bankruptcy process because it often means that they will become free from thousands of dollars of debt.
Myth: Bankruptcy proceedings will wipe off all of your debt.
Fact- Most of the debts can be wiped out, but certain kinds of debts, such as child support, alimony, student loans, criminal restitution, and some taxes, cannot be freed through bankruptcy proceedings. Additionally, debtors are not allowed to run up large sums of debts just before the bankruptcy petition was filed, especially if they knew they had little likelihood of repaying the debt, and then eliminate them through bankruptcy. And while you can most likely keep your home and car during the bankruptcy process, you don’t get them for free: you still have to remain current on home and car loans if you want to keep the property.
Bankruptcy is a perplexed area of law, consumers often suffer from misconceptions about the legal process and consequences of filing. As a result, many people avoid getting the debt relief they need and that they are entitled to under the law, for fear of the effect it will have on their credit rating, jobs and ability own a car or home. If you are hassled with overwhelming credit card, medical or other consumer debt, working with an experienced attorney can help you to separate fact from fiction, understand your rights and options under the bankruptcy law and regain your financial footing.
CC Brown is a law firm that represents clients vigorously in several areas of practice.